This article was written by John Snowden for The IRS Report in August 2011.

Iomart Group - behind every cloud is a silver surfer

Cloud computing and cloud-based services have become the latest buzzwords and it is becoming increasingly important for investors to differentiate between the reality and the hype. There are a number of companies trying to get a share of this new fast-growing market by adding the "cloud" tag in the hope that it has a halo effect on their business. Cutting corners does not make a reliable business and it is important to have well-tested and reliable delivery mechanisms.

Iomart was an early entrant to this technology (see below) which is the next stage in the internet's evolution to encompass everything from computing power to computing infrastructure which can be provided and delivered at the flick of a switch whenever needed.

There are three primary deployment models for cloud services:

• Private clouds, whether operated and hosted by your enterprise IT department or by an external provider, are for the exclusive use of your organisation.
• Public clouds are open to any number of organisations and individual users. By using a public cloud, capital innvestment is minimised and a company or individual has agility, efficiency, with massive scalability.
• Hybrid clouds link private and public clouds providing access to extra resources. This type of cloud may be split on a tiered basis between private and public clouds. For example, the database may reside in the private cloud while the application server is located in the public cloud.

Google and Amazon were original cloud users and both companies have most of their IT resources in the cloud. Cloud computing can completely change the way companies use technology to service customers and suppliers. A lot of day to day running costs can be eliminated saving space, time and cost.

Glasgow-based Iomart Group was founded in 1998 as an integrated internet and telecommunications provider and became the UK's first high-speed internet reseller through its Madasafish brand. Competition was fierce causing founder and chief executive, Angus MacSween to decide that the company was never going to win a war with the telcos. After a strategy rethink, it was decided the future strategy for the company lay in hosting and data services.

Having recognised the effects the World Wide Web would have on everyday life, the company was determined to remain at the heart of the UK internet industry. During the last decade the group as evolved through organic growth to become one of Europe's leading internet hosting and managed service companies.

Today the group operates in its chosen marketplace through five distinct and autonomous brands having built their technologies from the ground up specifically to be delivered through the cloud.

The brands include:

• Iomart Hosting, one of the UK's leading providers of managed hosting services and solutions.
• RapidSwitch, a Berkshire based company which hosts more than 4,000 servers for a wide range of clients. Deloittes has ranked RapidSwitch as one of the fastest growing technology companies in the UK.
• Easyspace was acquired in 2004 and was one of the UK's first providers of domain names and web hosting services. It has since grown to become of Europe's largest hosting companies serving more than 300,000 consumer and SOHO customers.
• Netintelligence has won many awards for a unique range of products such as email filtering, parental control solutions and end point protection. Using an advanced technology platform, Netintelligence can brand, configure and manage applications to complement existing product portfolios.
• Titan Internet, an Essex-based company, founded in 2001, was acquired in November last year for £4.2m. The company manages over 1000 servers on behalf of coroprate clients, has an excellent reputation providing web-based IT services - cloud computing. This profitable company was a superb deal, immediately earnings enhancing before one-off integration costs. Described as an "Iomart in miniature", I believe there have already been significant cost savings.

For the year to end-March 2010 Iomart has produced its first profit, turning a loss of £1.2m for the previous year into a profit of £1.25m as turnover rose from £11.8m to £18.33m. For the year to end-March 2011, there was a further increase in revenue to £25.3m with pre-tax profits rising to £2.79m. A final dividend of 0.65p (+63%) will be paid in October.

Since the company year-end, Iomart has acquired Liverpool-based Switch Media for £1.25m. Switch supplies domain names and shared hosting and cloud computing serives to small businesses. There should a considerable cost savings on the deal via a reduction in overheads as the company is integrated into the Easyspace subsidiary.

In 2007, the group took the decision to build up its own data centres in London, Glasgow, Leicester and Nottingham spending over £3m on state of the art equipment.

Elsewhere, the group has data centres in the USA and Asia but has no staff overseas as the computing equipment is remotely controlled in the UK.

Angus MacSween has built himself a well respected reputation. After a short service commission in the Royal Navy, he started selling telephones in 1984. Since then he has established and sold five profitable telephony businesses, including the sale of Teledata to Scottish Power Telecommunications.

He believes that the cloud computing market is huge and Iomart just needs a tiny share of the market to become very successful. Iomart already has a premium rating to the sector but it looks like a company on the start of a long profitable journey which is already regarded as a leading player in the hosting/cloud arena.

It has certainly been a peculiar summer so far. In Oslo we have had the occasional beautiful summer day but in the main they have been dark with weekend rainfalls equalling the monthly average.

Friday 22nd July was a terrible day for Norway. Our flat, some two miles from the bomb explosion, was thoroughly shaken just as we were about to depart for the seaside. A couple of hours later, we learnt about the gunman on an island with the news stations forecasting several deaths. Later that evening we saw the full extent of the carnage and the country was shocked to a standstill.

Life must go on. As we approach the end of the month we hope for some clarification on the US debt debacle. The news could set the trend for the markets over the coming months as it is becoming increasingly apparent that the US economy is heading for another downturn.

It may be in the interest of the US to pursue a weak currency policy but this is not reflected in the stockmarket which cannot remain divorced from reality for much longer. Expectations of 4% growth this year have now been trimmed back to 2.8%. Paying down debt will also hamper future growth and it may take several years before public and private sectors turn their thoughts from saving to spending.

Food for thought - The Bank of America recently reportedly their highest quarterly loss of $8.8bn, due to a large legal settlement.

Europe has its own continuing problems with the euro as bankers and politicians juggle around with Greece, Portugal and Spain. The big one - Italy has virtually reached crisis point as bond yields approach 7%. It may well be better for the eurozone if Italy pulled out as the euro has been an unmitigated disaster.

These uncertainties have caused investor hesitancy in the European markets but we are fast approaching the stage where something has to break. One favourable real plus point is that there are many well-run companies of all shapes and sizes in Europe. A continuing deterioration could well unleash a spate of takeovers as liquidity remains high and in the long run it may be wiser to acquire assets than sit on a mountain of depreciating cash. On the other hand, liquidity means flexibility.

What's in the cloud?

What is cloud computing? The "cloud" can be defined as the set of hardware, networks, storage, services and interfaces that combine to deliver aspects of computing as a service. Cloud services include the delivery of software, infrastructure and storage over the internet as either separate components or a complete platform based on user demand.

Main aspects include:-

• Virtually unlimited processing and storage capacity
• Abstracted pooled resources
• Elasticity, the ability to scale up or down easily
• On-demand, self-service provisioning
• High-level automation
• Consumer-based billing

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